President Biden is cracking down on 'unfair and unlawful' fees that are costing Americans billions every year - here's where hidden charges can hit the hardest

In Business/Economy
2022-10-27 22:00:00Z
By MoneyWise

President Biden is cracking down on âunfair and unlawful' fees that are costing Americans billions every year â here's where hidden charges can hit the hardest

President Joe Biden said this week he will crack down on so-called "junk fees" and the Consumer Financial Protection Bureau (CFPB) announced steps to effectively ban banks from charging surprise overdraft fees and depositor fees when a check bounces.

According to the CFPB, these charges cost Americans tens of billions of dollars every year.

The CFPB has issued new guidance about junk fees, saying that they are "likely unfair and unlawful under existing law."

Want to invest your spare change but don't know where to start? There's an app for that
You could be the landlord of Walmart, Whole Foods and Kroger (and collect fat grocery store-anchored income every quarter)
A TikToker paid off $17,000 in credit card debt by cash stuffing - can it work for you?

Biden said during a press conference this week that he wanted to give Americans more "breathing room" as the economy tightens.

At the White House Competition Council last month, Biden tasked the council, made up of lawmakers and watchdog agencies, to come up with a plan to "reduce or eliminate hidden fees."

Restaurants, hotels and ticketing sites have also been using additional service fees to try and keep prices low. And all these surcharges make the actual price of what you're purchasing plenty more than you bargained for.

Fees are here, there, everywhere

These somewhat ambiguous fees have been cropping up on bills all over the service industry in recent months.

Romano's Macaroni Grill added a $2 surcharge at all its locations across the country to help alleviate "macroeconomic" pressures.

Ca Va, a champagne bar in Kansas City, Missouri, is charging a 20% hospitality fee on all tabs to "ensure livable, competitive compensation for all staff."

And Ally Restaurants in Minnesota, a chain of two restaurants and a food truck, is also charging a 3% "wellness fee" that goes toward making up benefits for staff.

From a restaurateur's perspective, the challenges are starting to add up.

Inflation is still high, hitting 8.2% in September, and food costs are one of the major drivers of that.

Meanwhile, the service industry has been hit hard by job turnover. The quit rates in leisure and hospitality have been consistently above 4.5% since the fall of 2020, according to the U.S. Chamber of Commerce.

"In Minnesota, we were forced to close down twice [during the pandemic]," says Tory Reding, president and co-owner of Ally Restaurants. "We've lost a remarkable number of people in the industry itself so that makes it even more challenging." Reding raised his menu prices, but he says that still didn't cover the difference.

"Gas went from $2 a gallon to $5 a gallon, well, I can't take my menu prices up … from a $15 burger to a $30 burger," says Reding. "That just won't fly, I mean, nobody will come in." "Put quite simply, you cannot raise your prices enough to cover the inflation of cost of goods, delivery of food and those things on top of what's happening with the labor market."

Extra fees are nothing new

Airlines and hotels, among others, have been doing this for years to attract more customers.

"Psychologically, it's a lot easier for consumers to think about a single number as opposed to a roll up of numbers," says Jeffrey Galak, associate professor of marketing at Carnegie Mellon University.

Galak says consumers are more likely to swallow a higher price when it comes in the form of extra charges. When a higher than anticipated price is presented to you, it can turn you off without even thinking about it.

"We're all lazy consumers … what we'll do is we'll look at the top line number, and ignore that there are these other fees maybe on the back end. And for [businesses], that works quite well, because they've already got the consumer engaged with the product," Galak says.

By the time you've realized that there are these additional fees, you're probably already committed.

"It's more advantageous to have a fee than to raise prices, because it seems like they're keeping prices relatively flat," Galak says. "So consumers need to be hyper aware of this."

Read more: The great escape: Rich young professionals earning over $100K are fleeing California and New York - here's why and where they are headed

Running the risk of alienating customers

Of course, racking up fees can run the risk of alienating or annoying customers.

But many businesses will see losing some customers at the end of a transaction as better than putting them off at the beginning with a higher initial cost, says Galak.

"Because of all these inflationary pressures, you're seeing [businesses] trying to figure out, 'Well, how do we navigate this?' And a lot of it is a learning exercise," says Galak. "We haven't seen this rate of inflation for a really long time. And so everybody's trying to figure out what to do here."

It can be a risky move, but he adds it's a risk most seem willing to take, though it comes with some blurred ethical lines.

"It does seem like [businesses] are perhaps taking advantage of this inflation. And instead of potentially cutting into their own profits, they do seem to be acting in a much more selfish way, which one might argue [businesses] are supposed to do," says Galak.

"But from a societal perspective, and from a consumer perspective… boy, is that problematic."

Being an informed consumer is getting harder

Galak says there isn't much you can do to work around this type of pricing. He does suggest making use of websites that aggregate prices. Instead of trying to book a flight through an airline, book through an aggregate site that will give you the actual price up front.

You could also check out a restaurant's website before you go to see if there's an added charge, or call ahead and ask the staff.

But ultimately, Galak says, being an informed consumer isn't easy these days.

"It's getting harder and harder for consumers to be able to make informed decisions on tight budgets," he says. "Because [businesses] are getting more and more clever with how they conceal price changes."